Is 3.5% gross rental yield still worth it?
Most Singapore property investors calculate their returns wrong. 💸
They subtract purchase price from sale price, add up the rent, and feel good about the number. But here's the thing — 75% of your purchase price is the bank's money. Not yours.
The right way to calculate property returns is equity-only.
Here's what that looks like for a 1.17mil condo:
What you actually put in:
Downpayment (25%): $292,500
1) BSD (Buyer's Stamp Duty — the tax IRAS charges to buy): $31,400
2) Total equity deployed: $323,900
Monthly reality with $3,500 rental:
1) Rental: +$3,500
2) Mortgage P+I (1.55% p.a., 25-yr): -$3,530
3) MCST maintenance: -$400
4) Property tax (non-owner-occupied): -$440
5) Income tax @ 15% on net rental: -$250
💰 Monthly top-up: -$1,120
The rent barely covers the mortgage. Every other cost creates a monthly shortfall.
At exit (Month 60):
💴 Sale $1,320,000 minus agent fees (2%) minus outstanding mortgage (~$727,800) = +$565,800
IRR on equity deployed: ~8.3% per year.
📈 Now compare: a SG blue-chips and REIT (Real Estate Investment Trusts — owning slices of malls, offices, data centres) portfolio, assuming 5% dividend yield and flat real growth keeping up with 3% inflation, returns ~8.0%. The condo edges ahead by 0.3%.
🏠 Property wins on returns. Barely.
But those equities come with zero tenants, zero IRAS rental income filings, and full liquidity — you can sell in 3 clicks. The question isn't really which returns more. It's what you're prepared to manage. 💰
With only 0.3% separating property from equities — what tips your decision? Leverage and capital gains, or full liquidity and zero landlord duties?
This is assuming a 3.5% gross rental yield and a 13% capital appreciation on your property. which is pretty average.
This is in a low interest rate environment. When interest rate increases, it eats away at your profits.
This is also NOT accounting for the $1.1k cash negative cash flow for the rental property, which you could be investing and not yet factored into the calculation.
Not to mention vacancy gaps between leases and house maintenance etc…
I think the math speaks for itself.
Investing in Singapore property with a 3.5% gross rental yield often looks attractive at first glance, but as I’ve learned, the real picture emerges when you focus on equity—what you truly put in—and not just the headline numbers. Many investors overlook the fact that 75% of the purchase price is typically financed through a bank loan, which you don’t own outright. This means that the rental income often only slightly exceeds mortgage payments, and when you factor in maintenance fees, property tax, and income tax on rental earnings, you might actually be topping up cash monthly to hold onto the property. From my experience and research, the true yield on equity investment—taking downpayment, Buyer’s Stamp Duty (BSD), monthly top-ups, and sale proceeds into account—averages around an 8.3% annual return over five years in a low interest environment. This return is marginally better than a diversified portfolio of Singapore blue-chip stocks and REITs, which yield about 8.0% annually including dividends and inflation adjustments. However, property investment demands active management. You’re the landlord handling tenants, maintenance, and tax filings like rental income declarations to IRAS, which can be time-consuming and stressful. On the other hand, stocks and REITs offer liquidity—you can buy or sell shares with a few clicks, and no landlord duties to handle. This flexibility can make a big difference, especially during market fluctuations. Another important factor is leverage. Property allows you to leverage a mortgage, boosting potential capital gains, but it also means rising interest rates can erode your profits quickly, as monthly mortgage payments increase while rental income might remain fixed. Investors need to be prepared for this risk. Ultimately, choosing between property and equities when the returns differ by just 0.3% per year depends on your risk tolerance, management willingness, and liquidity needs. Some investors prefer the steady growth and tangible nature of property despite the cash top-ups, while others prioritize ease, liquidity, and the hands-off nature of stock investments. If you’re considering a 3.5% rental yield investment in Singapore, make sure to analyze your cash flow, factor in all taxes and fees, and assess how comfortable you are with active management or potential monthly shortfalls. Every investor’s situation is unique, so weigh both financial returns and personal convenience carefully before deciding.
